2024-01-11 17:58

Jan 11 (Reuters) - The rocky path of getting inflation back to the U.S. Federal Reserve's 2% target rate reflected in the latest Consumer Price Index (CPI) figures means that it would likely be too soon for the central bank to cut its policy rate in March, Cleveland Fed President Loretta Mester said on Thursday. "I think March is probably too early in my estimation for a rate decline because I think we need to see some more evidence," Mester said in an interview with Bloomberg TV. "I think the December CPI report just shows there is more work to do and that work is going to take restrictive monetary policy." The U.S. central bank in December forecast cuts to its benchmark overnight lending rate this year but the timing and pace of them remain in flux as officials parse economic data. Mester cited the need for the goods, housing and shelter excluding housing categories in the inflation measurement to "see more progress" as well as for wage gains to slow. Earlier on Thursday, the difficulty in bringing inflation back down was underscored by a stronger-than-expected reading on price pressures as Americans paid more for shelter and healthcare. The Fed's rate-setting committee next meets on Jan. 30-31, when the central bank is expected to keep its policy rate unchanged in the current 5.25%-5.50% range. Investors are still maintaining bets though that the Fed will begin to cut its policy rate at the following meeting in March, according to an analysis of fed funds futures contracts by the CME Group. Mester added that the latest inflation data did not suggest progress on reducing inflation was stalling and emphasized the need for the Fed to more carefully manage the risks to both sides of its inflation and employment mandate in the coming months. "The risks have become more in balance...that's the job this year. It's to make sure we are calibrating policy to maintain healthy labor markets even as we continue the process to get inflation back to 2%." The inflation figures followed the closely watched monthly jobs report last Friday, which showed a still-resilient labor market, with employers adding 216,000 jobs in December and annual wage growth edging up. https://www.reuters.com/markets/us/feds-mester-says-march-probably-too-early-rate-cut-2024-01-11/

2024-01-11 17:51

Jan 11 (Reuters) - Smith Douglas Homes (SDHC.N) notched a valuation of $1.21 billion in its market debut on Thursday, after the homebuilder's shares jumped 11.9% on debut, marking a strong start to the year with investors warming up to new listings. The company sold 7.69 million shares in its initial public offering (IPO), raising $161.49 million, priced at $21 apiece — the higher end of the previously estimated range. Despite a turbulent economy and sky-high mortgage rates, Smith Douglas' upbeat debut reflects investor confidence in the sector with housing demand still paddling strong. The IPO market got a jolt of life in late 2023 with big names across sectors such as chip designer Arm Holdings , sandal maker Birkenstock (BIRK.N) and grocery delivery app Instacart (CART.O) listing their shares in the U.S. No homebuilder has raised more $100 million in an IPO in the United States since 2021, according to data from Dealogic. The last to cross that was Dream Finders Homes (DFH.N), shares of which have since risen 153% above their offer price. "The IPO proceeds should help Smith Douglas expand its presence in the Southeast region," said Blake Brutocao, lead analyst at Renaissance Capital. U.S. single-family homebuilding hit a 1-1/2-year high in November, positioning companies such as Smith Douglas for significant growth and investor interest. Shares of homebuilding giants in the U.S. such as DR Horton (DHI.N), Lennar Corp (LEN.N) and Pultegroup (PHM.N) have surged more than 60% each last year. "We could see more names from the real estate sector emerge as mortgage rates settle and additional buyers enter a market that has experienced low inventory," Brutocao added. Upon closing of the offering, founder fund, the Bradbury Family Trust will hold 88.2% voting power of the company. Smith Douglas had previously disclosed that its home closing revenue dipped 4.3% for the quarter ended Sept. 30, 2023, while its profit fell 11.8%. https://www.reuters.com/markets/us/homebuilder-smith-douglas-valued-121-billion-strong-debut-2024-01-11/

2024-01-11 17:42

NEW YORK, Jan 11 (Reuters) - Mortgage rates edged higher for a second week, a survey released on Thursday showed, but they remain near the lowest levels since early last summer, which has contributed to a rebound in home loan demand in the new year. The average 30-year fixed-rate mortgage rate ticked up slightly to 6.66% on Thursday from 6.62% the week prior, according to a report from Freddie Mac. “Mortgage rates have not moved materially over the last three weeks and remain in the mid-six percent range, which has marginally increased homebuyer demand,” said Sam Khater, chief economist at Freddie Mac. "Even this slight uptick in demand, combined with inventory that remains tight, continues to cause prices to rise faster than incomes, meaning affordability remains a major headwind for buyers." Mortgage rates began softening during 2023’s fourth quarter on the back of a rallying bond market. After the Federal Reserve held its policy benchmark interest rate unchanged for three straight meetings, yields on mortgage-backed securities fell, and the average 30-year fixed-rate mortgage has eased from rates nearing 8% in October. Rates on the most common type of home loan rose to two-decade highs last year following the Fed’s rate hike cycle, launched in 2022. High interest rates have limited affordability for prospective buyers and stoked an inventory shortage in the housing market as homeowners locked into cheaper rates were discouraged from selling. https://www.reuters.com/markets/us/mortgage-rates-tick-up-second-week-freddie-mac-2024-01-11/

2024-01-11 15:06

NEW YORK, Jan 11 (Reuters) - Foreigners added a net $29 billion into emerging market debt and equity portfolios in December enticed by a view that the U.S. Federal Reserve will soon ease monetary policy, taking the 2023 estimated net inflow near $179 billion, the Institute of International Finance said on Thursday. The overall December figure compares to an inflow of $41.1 billion in November and outflows of $5 billion in December 2022. Yearly estimates show a net $82.2 billion outflow from China portfolios, while EM ex-China saw $261.1 billion in net non-resident portfolio inflows. Stock portfolios posted an $18 billion inflow last month, the largest since January 2023, while debt portfolios attracted $11.1 billion, marking 10 months of inflows for the asset class last year. Flows to equities in EM ex-China jumped to $21.4 billion, the highest since November 2022, while the $10.9 billion inflow into ex-China debt meant every month but June saw inflows last year. The flow to ex-China equities last month was supported by "the closing-year rally in U.S. markets and relative cheap valuations across a handful of EMs," said in a statement IIF economist Jonathan Fortun. "Foreign investors' ownership of local government debt in countries like Brazil, the Czech Republic, Indonesia, and South Africa still lags significantly behind levels observed before the pandemic, which represents an opportunity for larger debt inflows in 2024," he added. Chinese equities saw a 3.4 billion outflow to end the year but bonds eked a $0.2 billion inflow, just the second month of positive flows in all of 2023. https://www.reuters.com/markets/foreigners-pile-29-bln-into-em-portfolios-december-179-bln-2023-iif-2024-01-11/

2024-01-11 15:05

Jan 11 (Reuters) - Federal Reserve policymakers may not be quite as eager to start cutting interest rates as soon as March after fresh data showed inflation ticked up in December. The consumer price index (CPI) rose 0.3% in December after increasing 0.1% in November, the Labor Department's Bureau of Labor Statistics said on Thursday. From a year earlier, consumer prices rose 3.4%, more than the 3.2% economists polled by Reuters had expected. U.S. central bankers want more confirmation that inflation is on a firm path toward their 2% goal before they reduce the policy rate, now in the 5.25%-5.5% range. Thursday's data fell short of delivering that, with shelter prices failing to cool as policymakers have long expected. Used car prices, air fares, and medical care services prices also rose. "The upshot of today’s inflation report is that the inflation dragon, while maimed, has yet to be slain," said Jason Pride, chief of investment strategy and research at Glenmede. Futures contracts that settle to the Fed's policy rate are still pricing in about a 65% chance of a Fed rate cut in March, down from about a 70% chance seen before the report, and see Fed taking the policy rate down below 4% by the end of the year. Those bets are far more aggressive than Fed policymakers themselves signaled last month, when they penciled in a year-end policy rate of 4.6%. https://www.reuters.com/markets/us/traders-pare-bets-fed-will-cut-rates-march-after-inflation-data-2024-01-11/

2024-01-11 14:10

NEW YORK, Jan 11 (Reuters) - U.S. consumer prices increased more than expected in December as rents maintained their upward trend, which could delay a much anticipated interest rate cut in March from the Federal Reserve. The consumer price index (CPI) rose 0.3% last month after nudging up 0.1% in November, the Labor Department said on Thursday. The cost of shelter accounted for the more than half of the increase in the CPI. In the 12 months through December, the CPI rose 3.4% after increasing 3.1% in November. Economists polled by Reuters had forecast the CPI gaining 0.2% on the month and climbing 3.2% on a year-on-year basis. read more MARKET REACTION: STOCKS: U.S. stock index futures turned 0.14% lower BONDS: U.S. Treasury yields rose right after the data, with 2-year note last at 4.371%, and the 10-year note at 4.038% FOREX: The dollar index turned 0.186% higher COMMENTS: SEEMA SHAH, CHIEF GLOBAL STRATEGIST, PRINCIPAL ASSET MANAGEMENT, LONDON “Today’s inflation report reinforces the notion that the market had gotten a little overexcited around the timing of rate cuts. These are not bad numbers, but they do show that disinflation progress is still slow and unlikely to be a straight line down to 2%. Certainly, as long as shelter inflation remains stubbornly elevated, the Fed will keep pushing back at the idea of imminent rate cuts. Yet, while the market was probably overenthusiastic in its initial expectations, the stars should finally align for Fed cuts – most likely around mid-year.” BRIAN COULTON, CHIEF ECONOMIST, FITCH RATINGS, LONDON "Looking through the small rise in headline inflation - which was due to energy prices rising - I think the message from this release is that core inflation is proving sticky. Core inflation only edged down very slightly to 3.9% y/y from 4.0% in November and was flat at 0.3% m/m. While the problem of high goods inflation looks to have been solved - with core goods prices flat or falling in sequential terms for six or seven months now - there is still quite a bit of work to do in bringing down services inflation. Services inflation is still over 5% y/y and running at 0.4% m/m. This is not consistent with overall inflation returning to 2% on a sustained basis. This will give the Fed grounds for caution and they are unlikely to cut rates as quickly as the markets currently expect." ALEXANDRA WILSON-ELIZONDO, DEPUTY CHIEF INVESTMENT OFFICER, MULTI-ASSET SOLUTIONS, GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK “Coming into today, the CPI report carried the heavy burden of having to reaffirm the foundation of the market’s psychology that the almost near consensus soft landing view isn’t just another crowded hope trade. Importantly, it needed to re-underwrite the market’s current pricing path that the Fed will start cutting rates in the first quarter. "Specifically, the headline number came in hotter than expected and core CPI came in in-line with expectations. This print should challenge the markets expectations of rate cut timing. There is nothing in the report to cause the Fed to hurry to cut rates. However, because it was not too hot, it should leave the hopes of a soft landing intact. "Ultimately, we are focused on the labor market to dictate the speed and extent of the cutting cycle, and we continue to believe the middle of the year to be more appropriate to start. Either way, the December inflation data is unlikely to change the overall dovish trajectory this year as material progress has been made. In our view, the dovish Central Bank tone, progress in inflation, decline in oil prices, and resilient, but loosening labor market are all positives for risk assets. We believe any inflation scare driven drawdowns should be bought.” STUART COLE, CHIEF ECONOMIST, EQUITI CAPITAL, LONDON “A stronger set of inflation numbers from the US than was generally expected, the fallout from which will almost certainly be the chances of a March interest rate cut now being largely discounted. Although the core annual rate fell from 4.0% to 3.9%, the increase in the headline rate from 3.1% to 3.4% will not convince the Fed that inflationary pressures are definitively slowing, and adding into the mix last week’s employment report, which showed the labour market continuing to show resilience in the face of the Fed’s tightening delivered to date, the chances of a near-term easing in monetary policy looks quite remote now. Particularly concerning will be the fact that the core services component continues to show no real signs of moderation, and even though the chances of a March hike had already been fading, I think it is not unreasonable for Powell to try and play down the prospect of a May cut too when he speaks at the FOMC press conference on 31 January. Another monthly 0.3% reading when we get the January CPI numbers next month will probably be enough to rule out a May cut.” PAUL NOLTE, SENIOR WEALTH ADVISER, MURPHY & SYLVEST, CHICAGO "It (inflation) is heading in the wrong direction. If you annualize 0.3%, we're at 3.6%. That's above what the Fed's looking at.” “It may push (rate cuts) out a little bit more from March to June. Our thought is that it's the second half of the year discussion.” QUINCY KROSBY, CHIEF GLOBAL STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA “Inflationary pressures, while generally inching lower, remain stubbornly higher than expectations as the so-called "last mile" requires more time to reach the final goal. Treasury yields inched higher following release of the report, and equity futures edged lower. The last Fed minutes underscored that the path towards price stability remains uncertain, and today's CPI report suggests that the Fed's initial rate cut may be later than the market is hoping for.” CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, INDEPENDENT ADVISOR ALLIANCE, CHARLOTTE, NC "CPI slightly increased, which should be a disappointment for stock investors, but it shouldn’t have an impact on the discussion around rate cuts for this year. The Fed came into this year expecting to cut 3 times (even though markets were pricing in twice as many) and this report shouldn’t change the Fed’s thinking. "What should be most important for investors is that the Fed is done raising rates (and this report doesn’t change that at all), so whether they cut in March or cut in June and whether they cut 4 times, 3 times, or only 2 times, shouldn’t matter too much. As long as the economy stays out of recession the market will keep moving higher and we will have a positive 2024 (even if the gains aren’t as exuberant as last year), but if we do slide into the waiting-for-Godot recession, then the stock market could drop 20% or more, so that is the most important issue, not when or how many times the Fed ends up cutting in during this “normalization” phase." ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, FAIRFIELD, CONNECTICUT "If you put the numbers into context, it's really not that bad. I don't think there's any change in the rate cut plan going forward. Anybody that gets wrapped up in one number is misplacing their emphasis. The economy is doing OK and inflation has come down. Anybody who thinks their expectations have changed is either bearish or they're talking their book." BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN "What this data really shows is that the path to a soft landing is not a straight line. The hotter-than-expected inflation number means investors have to rethink how many rate cuts the Fed will be able to pull off in 2024, and the market viewed the numbers as a disappointment and probably pushing out that first cut date." "We're still thinking that the Fed might only get three cuts in this year, but clearly contrary to what the market has been pricing in." https://www.reuters.com/markets/us/view-slightly-hot-dec-us-cpi-suggests-no-rush-fed-cuts-2024-01-11/